Standard and Poors

The Department of Justice filed a civil lawsuit against Standard and Poor's for fraud. Will the DOJ finally nail credit rating agency Standards and Poor's for slapping AAA ratings on rigged CDOs backed by mortgage toxic waste? Or will justice be just another slap on the wrist?

The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.83 percent, almost 50 basis points more than 10-year notes.

King of the Click Business Insider has alerted us all to an obscure comment on a proposed SEC rule for Nationally Recognized Statistical Rating Organizations. William J. Harrington, is a former Moody's Senior Vice President in the derivatives analyst group from 1999-2010. In Harrington's 80 page comment, he starts with this opening salvo:

Moody’s argues that RMBS committees could not have factored the collapse of real estate prices into their opinions, given that the scale of the collapse was both unprecedented and unforeseeable. This rationale is as unconvincing as it is disingenuous, for it pretends that Moody’s and other financial players were not designing and operating the conveyances that carried real estate prices to unsustainable levels in the first place. A roller coaster inexorably chugs up to stomach-turning heights before it hurtles downward, and both a carnival operator
and a thrill seeker understand the nature of the ride’s operations.

The rationale of “who could know?” is wholly undone through even a cursory examination of the actions of Moody’s and other financial players in the structured finance sector. Moody’s and other financial players took care to protect their earning should the real estate bubble that they were ushering into the world subsequently collapse.

All hail the credit rating agencies. The Dow is tanking, at the time of this post down over 630 points, probably getting hit with margin calls. Gold is over $1700 an ounce. Oil is down $3 dollars a barrel as investors hunt for a place to hide. Currency exchange rates are bouncing. Panic is clear due to high market volumes and the fear index, otherwise known as the VIX, surged 40% in a day.

Standard and Poor's finally did it. They downgraded the credit rating of the United States from AAA to AA+. There are serious questions about the reliability of S&P. The White House pointed out that there is a $2 trillion error in the calculations used for the downgrade. Ths is of interest since the two other agencies failed to change the AAA status of the US. (See S&P downgrades U.S.)

"A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it's unclear what they're going to do.," the official said.

"S&P's numbers were off by "roughly $2 trillion," the official said.

Fitch and Moody's reaffirmed the AAA US rating earlier in the week.

In addition to the question raised about a mathematical error, there are substantial reasons to doubt S&P for any credit rating, let alone the sovereign debt of the United States This material is from an article on April 25, 2011. It is highly relevant to the situation at hand.

Michael Collins
We are in the midst of a bum's rush - the quick eviction of a less than desirable in an unpleasantly abrupt fashion. The problem is we're the bums. Our eviction from the political process is all based the word of a firm that helped fuel the housing bubble, trigger the financial collapse, and found itself indicted by the State of Connecticut for "unfair, deceptive, and illegal business practices" in 2008.